Unconsolidated standard and amendments as first issued Financial Reporting Standard Retirement Benefits This is the full text of the original standard as issued by the Accounting Standards Board in November Online articles The Library provides access to leading business, finance and management journals. View the latest articles on FRS Articles and books in the Library collection View a list of articles and books in our collection on FRS 17 and retirement benefits To find out how you can borrow books from the Library please see our guide to book loans.
For quoted corporate or government bonds, the expected return should be calculated by applying the current redemption yield at the beginning of the period to the market value of the bonds held by the scheme at the beginning of the period.
For other assets for example, equities , the expected return should be calculated by applying the rate of return expected over the long term at the beginning of the period given the value of the assets at that date to the fair value of the assets held by the scheme at the beginning of the period. The expected return on assets should, in addition, reflect changes in the assets in the scheme during the period as a result of contributions paid into and benefits paid out of the scheme.
The expected rate of return should be set by the directors or equivalent having taken advice from an actuary. For other assets, the expected return has to be based on assumptions about the expected long-term rate of return.
The rate of return expected over the long term will vary according to market conditions, but it is expected that the amount of the return will be reasonably stable.
They comprise:. To the extent that the benefits vest immediately, the past service cost should be recognised immediately. Any unrecognised past service costs should be deducted from the scheme liabilities and the balance sheet asset or liability adjusted accordingly.
Such increases are covered by the actuarial assumptions and any difference between actual experience and the assumptions or the effects of any changes in the assumptions are actuarial gains and losses.
The fact that they are funded out of a surplus does not result in there being no cost to the employer if the surplus was potentially recoverable by the employer— the use of the surplus for benefit improvements means that the employer cannot then benefit from it in other ways. Gains arising on a settlement or curtailment not allowed for in the actuarial assumptions should be measured at the date on which all parties whose consent is required are irrevocably committed to the transaction and recognised in the profit and loss account covering that date.
Gains and losses arising from such events are part of the employer's operating results for the period unless they attach to one of the items shown immediately after operating profit. Where this is the case, the amounts recognised in the performance statements should be adjusted as follows. Refunds from schemes where the whole surplus is regarded as recoverable do not give rise to gains.
The cash received simply reduces the balance sheet asset along with any related tax effect. The gain arising in the latter case is a post-acquisition operating gain, not an adjustment to the purchase price and goodwill. If it does arise from such an event, it should be treated as part of the loss arising on that event.
To the extent that the contribution exceeds these items, the current tax relief attributable to the excess should be allocated to the profit and loss account, again unless it is clearly more appropriate to allocate it to the statement of total recognised gains and losses. The tax follows the relevant item, ie tax on the service cost, interest cost and expected return on assets will be recognised in the profit and loss account and tax on the actuarial gains and losses will be recognised in the statement of total recognised gains and losses.
FRS 16 Current Tax requires disclosure of the current tax recognised in the profit and loss account and statement of total recognised gains and losses. The question arises of where the current tax relief arising on contributions should be deemed to belong. Sometimes it will be clear what the contribution relates to, for example when a special contribution is made to fund a deficit arising from an identifiable cause, say an actuarial loss, in which case the current tax relief should be allocated to the statement of total recognised gains and losses.
In the absence of a clear link between the contribution and the items recognised in the performance statements, the allocation in paragraph 71 should be followed.
Any difference between that expected cost and amounts actually incurred should be treated as an actuarial gain or loss. Where the costs are not insured, the expected cost reflects the probability of any employees dying in the period and the benefit that would then be paid out. Amendment To FRS 17 Retirement Benefits December substituted this paragraph with effect for accounting periods beginning on or after 6 April , with early adoption encouraged.
An employer shall disclose each actuarial assumption in absolute terms for example, as an absolute percentage and not just as a margin between different percentages or other variables.
For the purposes of this disclosure, all other assumptions shall be held constant. For schemes operating in a high inflation environment, the disclosure shall be the effect of a percentage increase or decrease in the assumed healthcare cost trend rate of a significance similar to one percentage point in a low inflation environment. A the scheme liabilities expressed either as 1 an amount or 2 a percentage of the scheme liabilities at the balance sheet date and.
B the assets of the scheme expressed either as 1 an amount or 2 a percentage of the assets of the scheme at the balance sheet date. Such a description distinguishes, for example, flat salary pension schemes from final salary pension schemes and from retirement healthcare schemes. The description of the scheme shall include informal practices that give rise to constructive obligations included in the measurement of the scheme liabilities in accordance with paragraph 20 b.
Further detail is not required. It may be useful to distinguish groupings by criteria such as the following:. When an employer provides disclosures in total for a grouping of schemes, such disclosures are provided in the form of weighted averages or of relatively narrow ranges. Date from which effective and transitional arrangements. FRS Early adoption is encouraged. Amendment To FRS 17 Retirement Benefits December inserted this paragraph with effect for accounting periods beginning on or after 6 April , with early adoption encouraged.
The amount to be disclosed should be the amount recognised in the statement of total recognised gains and losses for accounting periods ending on or after 22 June and subsequently included by prior year adjustment under paragraph 96 of the FRS. This amendment changes paragraph 16 of the FRS and requires quoted securities to be valued at current bid-price. An entity is not required to restate corresponding amounts for the first two of the previous four accounting periods required by paragraph 77 o.
Where an entity selects not to restate corresponding amounts it should disclose that corresponding amounts are not restated. An entity shall apply that amendment for accounting periods beginning on or after 1 January If an entity applies the amendment for an earlier period, it shall disclose that fact.
Consistent with paragraph 95C , an entity is not required to restate corresponding amounts for the first two of the previous four accounting periods required by paragraph 77 o. Improvements To Financial Reporting Standards December inserted this paragraph with effect for accounting periods beginning on or after 1 January It is not required to create retrospectively the five-year history of amounts recognised in the statement of total recognised gains and losses beyond those figures already disclosed in financial statements under paragraph 94 above.
The method of arriving at fair value under this FRS may be different from that previously used on acquisition, but any such difference should be treated as a change in assumptions ie an actuarial gain or loss arising since acquisition.
Goodwill arising on the acquisition should not, therefore, be restated. The extent to which a surplus can be recovered should also be determined in accordance with the requirements of FRS Amendment To FRS 17 Retirement Benefits December substituted this appendix with effect for accounting periods beginning on or after 6 April , with early adoption encouraged.
Extracts from notes show how the required disclosures may be aggregated in the case of a large multi-national group that provides a variety of employee benefits. In particular, they do not illustrate the disclosure of:. Paragraph A a of the Standard requires this disclosure to include the entity's accounting policy for recognising actuarial gains and losses. The pension plan assets include ordinary shares issued by [name of reporting entity] with a fair value of 20X1: Plan assets also include property occupied by [name of reporting entity] with a fair value of 20X1: ASB Note: FRS 17 sets out where changes in the defined benefit asset or liability other than that arising from contributions to the scheme should be reported in the performance statements.
Assumed healthcare cost trend rates have a significant effect on the amounts recognised in profit or loss. A one percentage point change in assumed healthcare cost trend rates would have the following effects:.
Post-employment medical Retirement healthcare benefits. The group also participates in an industry-wide defined benefit plan that provides pensions linked to final salaries and is funded on a pay-as-you-go basis. It is not practicable to determine the present value of the group's obligation or the related current service cost as the plan computes its obligations on a basis that differs materially from the basis used in [name of reporting entity's] financial statements.
The unfunded liability will result in future payments by participating employers. The plan has approximately 75, members, of whom approximately 5, are current or former employees of [name of reporting entity] or their dependants. The expense recognised in the income statement, which is equal to contributions due for the year, and is not included in the above amounts, was 20X1: The group's future contributions may be increased substantially if other entities withdraw from the plan.
The relevant requirements are contained in Schedule 4 and are summarised below. Schedule 4 to the Act does not apply to banking and insurance companies and groups, nor to small companies to the extent that they choose instead to comply with the reduced requirements set out in Schedule 8.
Requirements corresponding to those of Schedule 4 are set out for banking companies and groups in Schedule 9 and for insurance companies and groups in Schedule 9A. Accordingly the FRS requires these items to be included as other finance costs or income adjacent to interest.
IAS 19 was further revised in It was then revised again in While not the only treatment possible, IAS 19 can now be applied in such a way as to result in a very similar treatment to that required by FRS IAS 19 revised requires an entity to either:.
Such permitted methods include immediate recognition of gains and losses in the profit and loss. It explained that the Board did not believe that there were sufficient reasons to stand out against the global trend to a market value approach as long as such an approach could be developed in a way that did not introduce undue volatility into the profit and loss account.
It was clear that a pensions standard based on actuarial values for assets would be regarded internationally as weak and would not be an approach that other standard-setters would follow. Given this, and the increasing use of market values by the actuarial profession, it concluded that the UK and the Republic of Ireland should move into line with international practice and use market values rather than actuarial values for scheme assets.
This view was accepted by a majority of the respondents to the Discussion Paper. The resulting main changes from SSAP 24 are:. The detailed reasoning behind the changes is set out below. The pension scheme assets and liabilities will be measured at fair value. The profit and loss account will show the ongoing service cost, interest cost and expected return on assets while the market fluctuations will be recorded in the statement of total recognised gains and losses.
In addition, and perhaps more importantly, it was clear that substantial changes were taking place within the actuarial profession relating to the traditional actuarial methodologies for measuring assets in a pension scheme. Of the actuaries responding to the Discussion Paper, all but one supported the use of actuarial valuations. Of the actuaries responding to the Discussion Paper, all but one supported the use of market values.
Given this, and the advantages of market values in terms of objectivity and understandability, the Board believes there is no credible alternative to their use. However, there is no active market for most defined benefit scheme liabilities. Their fair value has therefore to be estimated using actuarial techniques. There are two families of actuarial methods for valuing defined benefit liabilities: accrued benefits methods and prospective benefits methods. The difference between them lies in their treatment of the time value of money.
Also welcoming the postponement, Mr Kevin Reynolds of Mercer Human Resource Consulting said that the aim of achieving a meaningful balance sheet was worthwhile but added that the standard's timing had been difficult. See a sample. Please update your payment details to keep enjoying your Irish Times subscription. FRS 17 standard delayed Thu, Jul 4, , Peadar Browne. Personal Finance. My Lords, at times the issues of the funding of pensions and FRS 17 can become interconnected.
Clearly there is an issue with regard to the cash funding of the pension scheme on which an employer has determined, irrespective of the accountancy treatment. As an employer, any charity must think carefully and prudently about the package of employment benefits it thinks it needs and can afford to offer. With regard to the first question put by the noble Lord, asking whether the Government will in effect sign a blank cheque to fund all such pension schemes—perhaps that was not quite what he said—the answer is no.
However, we are looking at the whole issue, both in the cost-cutting and the PIU reviews on charities. We expect to produce some interesting publications in the autumn about how policies towards charities and the voluntary sector are to be developed in the future. Is it not true that reserves still have to be shown in the accounts?
Therefore, the point made with regard to the reserves held by charities is valid, irrespective of anything the Government may have done with regard to postponing the introduction of FRS My Lords, that is right.
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